What's behind enterprise insourcing of IT?

Takeaway: Some U.S. companies are making moves towards bringing formerly insourced jobs back in house. What’s behind this decision?

The annual salary of a software developer in the
U.S. is $94,000. In India, it is $14,000, and in the Philippines it is
$7,521 (Source: http://jobs.aol.com/articles/2012/07/09/gm-vows-to-insource-most-of-its-it-jobs-beginning-of-a-trend/.)
Cloud-based tracking software gives companies immediate insights into
the productivity of the offshore workers that they contract with-and the
ability to provide true “follow the sun” resources for projects and IT
support. All of this has made offshore IT markets extremely attractive
to U.S. companies.
At the same time, there are U.S. companies that have or are making make countermoves toward insourcing.
One of them is General Motors, which announced in 2012 its plans to insource 90 percent
of its IT jobs within three years. The goals are higher productivity
from onshore staff, reduced travel, lower management burdens, better
cultural fits and most importantly, the ability to directly command
technology expertise for new product innovation and speed to market that
will drive revenues and to also give the company a competitive edge
since technology expertise is now a major defining competitive factor in
most industries.
GM is not alone. Ford, Starbucks, Caterpillar, Google and GE all have made or are making insourcing moves.
They cite factors like bringing products to market quicker, lower
transportation and warehousing costs, better product and service
quality, less rework, stronger intellectual property protection and a
stronger “goodwill image” among Americans who are still struggling
economically.
“A major reason large companies are considering insourcing IT is out
of fear that their in-house IT skills bases are eroding with outsourcing
and that they no longer have the technology “wherewithal” to support or
to innovate with their own technology resources,” confided one IT
industry consultant who works with a major corporation who is moving
to insourcing.
Is excessive outsourcing ultimately a threat to American companies?
Prognosticators like Paul Craig Roberts,
who served as Assistant Secretary of the Treasury in the Reagan
Administration, say “yes.” Robert described outsourcing as “fool’s gold
for companies.” He went on to say that “Corporate America’s short-term
mentality, stemming from bonuses tied to quarterly results, is causing
U.S. companies to lose not only their best employees–their human
capital–but also the consumers who buy their products. Employees
displaced by foreigners and left unemployed or in lower paid work have a
reduced presence in the consumer market.”
Not every company looking at insourcing has necessarily connected all
of the dots to arrive at Roberts’ conclusions about the consumer
market. But what more companies that are insourcing are concerned about
is the steady erosion of intellectual capital within their four
walls-and also the ability to protect their product and idea innovations
amid loose or nonexistent patent laws abroad. When this happens, you
can find yourself investing in and doing all the R&D work-and then
losing the market to those who have made off with your ideas and
marketed them under their own labels.
It is in this scenario that IT potentially becomes high risk–because
so many of the innovations companies are making-not only in products but
in speed to market and the ability to capture more revenue while
cutting costs-come from technology innovation. This is the area that
more companies are starting to churn into their strategic thinking.
They are weighing insourcing against the simple mathematics of
procuring commodity IT labor at cut-rate prices. Other important areas,
like speed and quality of manufacturing and time to market, are also
getting consideration.
The debate will continue as we move into a new year. But it’s safe to say that in a majority of cases, we will continue to see a “mix”
of outsourcing and insourcing practices, with a number of companies
concluding that they have over-outsourced over the past few years to
where they are now risking the long-term health of their internal
intellectual capital.